SCI Start the Week - 19 November

Category: ABS Capital Relief Trades CDO

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A review of securitisation activity over the past seven days

Market commentary
Pepper Group is prepping an Australian RMBS that is expected to include a short US dollar tranche and a euro-denominated pass-through tranche. Elsewhere in the European primary securitisation market, a pair of Dutch RMBS were in focus last week – NIBC Bank’s €476.2m Dutch MBS XIX and Elan Woninghypotheken’s €337m EDML 2018-2 (SCI 16 November).

Ever-increasing primary issuance meant that European secondary market activity remained slow, with some spread widening emerging in the RMBS sector. One trader said that ECB-eligible paper is being prioritised over other issuance (SCI 13 November).

“I do not see why there is not paper in the secondary market, considering the amount of new issue supply,” he commented. “My theory is non-ECB eligible paper is not picking up because people know that the ECB bid will disappear over the next few months.”

There is also concern about the lack of response to the implementation of the STS regime in January. The trader stated that he and many colleagues are “already worried about flows.”

Another trader noted that certain new issue European CLOs are being fast-tracked due to the regulations (SCI 15 November).

Meanwhile, the US CLO primary market saw robust activity – in contrast to the secondary market, which was “a little squishier” (SCI 15 November). A good bid was apparent for double-B CLO paper, whereas preference for triple-B and single-B paper varied from deal to deal.

“What you are seeing in the US is a general wind-down as we get towards the end of the year,” the trader said. “It is difficult to get trades done, unless spreads start to widen significantly.”

The US CMBS primary market also faced a heavy issuance calendar last week, overshadowing secondary market activity and causing risk aversion (SCI 14 November). “We have seen healthy issuance volumes over the past few weeks,” observed another trader. “As far as the markets are concerned, it does not feel as though there is an appetite for added risk.”

Risk aversion was a theme in the US CMBS secondary market as well, due to the volatility seen over the past few weeks (SCI 16 November). “I’m hearing that The Street went into this heavy on paper and they are feeling that quite a bit,” said a different trader. “It seems most buyers are aware of it too – anything behind triple-B is about 23bp back. There’s not much of a bid out there for CMBS 2.0 paper either; not a lot of liquidity in the market.”

Transaction of the week
Standard Chartered has completed a US$297.5m financial guarantee that references a US$3.5bn trade finance portfolio (SCI 14 November). Dubbed Sealane 4, the transaction is a replacement trade for Sealane 3 - which matures in December - and is structured as a dual mezzanine tranche to appeal to a broad base of investors and address the EU Securitisation Regulation’s higher capital requirements.

The junior mezzanine tranche (representing 0.5% to 6.5% of the capital structure) attracts the typical capital relief trade investor, such as hedge funds, whereas the senior mezzanine tranche (6.5% to 9%) targets real money investors. The remainder (0% to 0.5% first loss tranche) has been retained by the bank.

The deal features a weighted average life that does not exceed three months, a 3.25-year replenishment period and a 4.5% cumulative default trigger that brings replenishment to an end if the trigger is breached. Another feature is the early termination of the protection, which will be triggered if the aggregate loss in the portfolio has exceeded the detachment point of the sold tranche (9%).

Moody’s has rated a separate deal to Sealane 4 called Trade Finance Transaction 2018-2 that, however, shares the same portfolio with Sealane 4. The transaction is composed of three rated tranches, which have been retained on Standard Chartered’s balance sheet.

Other deal-related news

  • The City of Chicago last month completed two issuances – Series 2018C and 2018D – totalling US$1.3bn through a first-of-its-kind securitisation programme named Sales Tax Securitization Corporation (SCI 13 November). The programme is intended to lower debt service costs without adding to the city’s risk profile.
  • The Dutch RMBS market has seen a surge of activity with two new Dutch RMBS transactions marketing, both of which are backed by prime residential mortgages and touted as STS-compliant (SCI 16 November). NIBC is back on the scene after a five-year hiatus with the €476.2m Dutch MBS XIX deal, while also marketing is the Goldman Sachs-mandated €337m EDML 2018-2 transaction from its Elan shelf.
  • Banco Santander Totta is in the market with Hefesto STC (Guincho), a €98m securitisation backed by a €481m GBV portfolio of Portuguese non-performing residential, commercial and unsecured loans (SCI 13 November). Most loans in the portfolio defaulted between 2014 and 2017 and are in various stages of resolution.
  • Wells Fargo, along with a group of funds affiliated with BlackRock and PIMCO, has reached a settlement to resolve two class action lawsuits in federal and state court over its role as trustee for 271 RMBS trusts created between 2004 and 2008 (SCI 13 November). Under the terms of the agreement, Wells Fargo - which denies the claims in the litigation - will pay US$43m.
  • The US Bankruptcy Court for the Southern District of New York last week dismissed an involuntary Chapter 11 bankruptcy petition against Trups CDO Taberna Preferred Funding IV, which Moody’s describes as credit positive because it upholds the basic tenets of non-recourse securitisations and bankruptcy remoteness (SCI 15 November). In June 2017, three investors in the Taberna IV class A1 and A2 notes filed the petition after several failed attempts to liquidate the collateral, but were opposed by the issuer, its collateral manager (Fortress), TP Management and five investors in notes junior to the senior notes.
  • The borrower's reasons for appeal in connection with the Quartier 206 Shopping Centre loan (securitised in TITN 2006-5) include new assertions that it does not owe any legal costs. The deadline for written responses to the appeal is 17 December and the oral hearing is due on 26 February 2019. For more on CMBS restructurings, see SCI’s CMBS loan events database.

Regulatory round-up

  • ESMA has issued a set of documents that aim to implement the new European regulatory framework for securitisations and help promote STS securitisations, including draft regulatory and implementing standards on the information to be provided as part of an application by a firm to register as a securitisation repository with ESMA, as well as the operational standards and access conditions for information collected and maintained by securitisation repositories (SCI 16 November). ESMA has also published its Final Technical Advice to the Commission on fees to be charged by ESMA for registering and supervising securitisation repositories, as well as further guidance to market participants on its arrangements for being notified of a securitisation’s STS status, such as reporting instructions and an interim STS notification template (pending the development of ESMA’s STS Register in the coming months).













Pipeline composition by jurisdiction (as of 16 November)

Last week saw another surge in issuance, with over US$4bn in auto ABS alone pricing on 15 November. Esoteric ABS, CLOs and RMBS added to the mix of prints.

The auto ABS prints comprised: US$1bn AmeriCredit Automobile Receivables Trust 2018-3, US$121.18m CarNow Auto Receivables Trust 2018-1, US$1.01bn Drive Auto Receivables Trust 2018-5, US$297m Flagship Credit Auto Trust 2018-4, US$1.1bn Honda Auto Receivables 2018-4 Owner Trust, US$1.03bn Mercedes-Benz Auto Lease Trust 2018-B, US$96.67m Tricolor Auto Securitization Trust 2018-2 and US$1bn Volkswagen Auto Loan Enhanced Trust 2018-2. The other ABS pricings included US$275m Delamare Cards MTN Issuer Series 2018-1, US$322m Sunrun Athena Issuer 2018-1, US$440m SunStrong 2018-1 and US$1.45bn Taco Bell Funding Series 2018-1.

Among the CLOs issued last week were US$402.5m Barings Middle Market CLO 2018-I, US$373m Crown Point CLO 6, US$716m Harbor Park CLO, US$458m TIAA CLO IV, US$407.5m Wellfleet CLO 2018-3 and US$410.3m ZAIS CLO 11. Finally, the A$750m La Trobe Financial Capital Markets Trust 2018-2 and US$1.3bn STACR Trust 2018-HRP2 RMBS rounded the issuance out.

BWIC volume

Source: SCI PriceABS